A new proposal under discussion by the Senate Finance Committee is a perfect example of the folly of trying to centrally design the economy — in this case by a ham-handed attempt at price controls.
The proposal, from Sen. Ron Wyden (D-OR) and under consideration by Chairman Chuck Grassley (R-IA), would change the Medicare Part D prescription drug rebate to penalize drugs whose prices rise faster than the rate of inflation.
It’s ironic the proposal targets Part D, one of the few islands of economic sanity to be found in the health care sector, which, beset by rampant government intervention, suffers from a wide variety of perverse unintended consequences.
Part D is one of the few government health care programs to successfully foster price-based productivity increases. In most parts of the economy, over time, prices go down and quality goes up, due to increases in productivity. The underlying mechanism driving this is competition.
One sign of how successful Part D has been in wielding competition is that in its first decade of existence, it cost over 40% less than what the Congressional Budget Office estimated it would, a historical and underappreciated achievement.
Tacking on feel-good, one-off pricing rules like Wyden’s “faster than inflation” penalty could easily disrupt the market-based dynamics that enabled Part D to flourish in the first place.
It’s just silly to think that something as complex, distributed and organic as a worldwide market for pharmaceutical drugs could be controlled by something as ramshackle as a “faster than inflation” rule.
Consider the variety of pricing mechanisms that exist in well-functioning markets. In retail, there are coupons, package deals, membership plans and other discounts. In the stock market, there is the “continuous auction,” providing ongoing price discovery that can react to new information in a matter of seconds.
Amazon’s server rental business offers clients a tremendous range of pricing options, split by eighteen datacenter regions, dozens of server types, and several tiers of availability.
There is a whole world of financing, from store-offered, no interest payment plans to credit cards to mortgages. Stores employ all manor of psychological pricing tricks, such as charging 99 cents instead of $1. One of the more incredible such tricks, which would be hard to believe without the well-established research backing it up, is that prices that contain fewer syllables (when read out loud) are more attractive than those with more syllables. For instance, $28.16 (five syllables) is better than $27.82 (seven syllables).
The incredible diversity in pricing practices stems from the decentralized nature of the market. You could never ask a single committee, or even a large organization, to come up with this level of creativity and variety on its own. It’s only from the organic interaction between millions of businesses and billions of customers, each expertly seeking their own interests, that it can ever arise.
You might compare Wyden’s “faster than inflation” proposal to the fences in Jurassic Park — “life finds a way,” as Dr. Ian Malcolm tells us, foreshadowing the inability of the park to contain the beasts contained within. Except, at least the 40-foot electric fences were a good faith effort. Wyden’s proposal is more like if they attempted to keep the T-Rex at bay with only the thin walls of the bathroom hut the hate-able lawyer ran and hid inside, shortly before becoming a dinosaur’s dinner.
In other word’s this “faster than inflation” rule is a laughable, pitiful attempt at something that isn’t even achievable by the most expert, determined effort — something like, say, the Soviet Union, which tried, and failed, to put price controls into practice at super power scale.
But that’s not to say it can’t do harm. At the very least, it will increase the cost of participating in the market, both in terms of compliance costs, and in the changed incentives and their inevitable unintended consequences. For example, a company that requires more revenue to survive might raise the prices slightly on all its products, instead of steeply on just one. How this all plays out is impossible to predict. What can be said for certain is the market’s “logic” would now be less about providing the most value for customers at the lowest price, and now more about the political ramifications of pricing decisions.
More specifically, as it relates to the Part D drug market in particular, the rule could crowd out existing rebates negotiated by the plans buying the drugs. Many plans have already secured “price protection rebates” which kick in if prices increase more rapidly than some agreed-upon threshold. In other words, the market has already invented, in a much more sophisticated and dynamic way, the “faster than inflation” rule on its own.
The worst case scenario is more dire. Generally speaking, fostering well-functioning markets in the health care sphere is exceedingly difficult, given the immense government intervention at every level. Part D’s success in doing so is nearly unique. Additional rules that make supply and demand less important to how the market functions could result in it ceasing to function as a market entirely. It certainly would not be the first time the government accidentally killed a market.
Wyden’s proposal exemplifies the folly of centrally-designed price controls. It will harm one of the only well-functioning parts of the federal government’s health care policy. For those reasons, Chairman Grassley and Committee Republicans should cast it in the dustbin of bad socialist ideas.
Ezra Klein thinks it’s “ridiculous” to ask Democratic presidential candidates whether they want to abolish private health insurance. It’s supposedly ridiculous because the correct answer isn’t yes or no, but “it depends.”
Several of the Democratic candidates have endorsed Senator Sanders’s Medicare for All bill. Klein takes up the subject:[I]f you assume both the generosity and the financing of Sanders’s plan, there’s really no reason to debate private insurance. If the government will cover everything, with no copays or deductibles or hidden forms of rationing, then there’s no need for private coverage. . . .[Sanders’s bill] doesn’t actually abolish private insurance. It outlaws “health insurance coverage that duplicates the benefits provided under this Act.” If the proposed benefits contracted during the legislative process, it would open more room for private insurers to enter the system. So even Sanders’s answer to this question isn’t truly “yes” or “no.” It depends on what’s covered, which in turn depends on how much Americans are willing to pay in taxes.
Klein then lists questions that he thinks debate moderators should be asking instead: Would your plan include cost sharing at the point of service, how would prices be determined, and so on. They’re not bad questions. But neither is the question about outlawing private insurance. In the first place, whether the Sanders proposal would change in the legislative process is irrelevant to the question of what the candidates are seeking. Their endorsement tells us the answer to that question. It is also hard to picture the Sanders proposal changing so much that anything like the private health-insurance policies that scores of millions of Americans now rely on could survive.
Several candidates — Gillibrand, Warren, Sanders, Harris, and probably a few others I’ve forgotten — have endorsed, of their own free will, making it illegal for Americans to buy the kind of insurance most of them now have. Americans should be informed about what Democratic health programs will look like. They should know as well whether they’ll have a choice about participating.
House Speaker Nancy Pelosi is considering a monumental change to Medicare — and believes that President Donald Trump might support her plan.
Her big idea? Binding arbitration — a method that empowers government-appointed “arbitrators” to dictate the price of new medications and treatments. She hopes it’ll lower drug spending.
That would represent an enormous change from the status quo. Right now, drug makers negotiate directly with private insurers and healthcare providers.
Arbitration is just a fig leaf for government price controls. Arbitrators are supposed to be unbiased. But they’d likely always side with the government officials who appointed them — and set prices well below fair-market value. Like all price controls, arbitration would discourage medical innovation.
Under Medicare, drug coverage is broken into two parts. Medicare Part B covers potent medicines, like chemo- and immunotherapies, that physicians administer in hospitals and doctor’s offices. Medicare Part D covers prescription drugs that patients can pick up at the pharmacy.
For both programs, drug prices are determined through negotiations between drug makers and private payers, like hospitals or insurers.
In a binding arbitration system, if Medicare officials aren’t satisfied with those negotiated prices, they could appoint an arbitrator to do their bidding. Medicare officials would explain to arbitrators why they feel a lower price is justified. Pharmaceutical companies would justify their own suggested price.
Arbitrators would then choose a legally binding price. And their decision wouldn’t be limited to the two proposals on offer.
This type of dispute resolution is also called “baseball arbitration.” Baseball teams are well known for bringing in neutral arbitrators to resolve contract disputes. But Pelosi’s arbitration plan shouldn’t be compared to the big leagues, as the government would run the entire show. Government officials would get to pick the arbitrators — and would almost certainly choose ideologues who agree with them. So the “negotiation” would function identically to price controls.
Price controls always stifle innovation and harm patients in the long run.
Drug development is a risky business. It takes about $2.6 billion and between 10 and 12 years, on average, to create just one new drug. Around 90 percent of medicines never make it past clinical trials.
Investors are willing to take such financial risks on the off chance their drug succeeds and is profitable. Price controls eliminate that potential by making it harder for companies to recoup their R&D expenses. No investor would risk her capital knowing the government could undervalue her discoveries.
Just look at what price controls did to Europe. In the 1970s, European companies made more than half of the world’s new drugs. Then governments across Europe began to implement various price control schemes over the next 10 years. European countries develop less than 33 percent of new drugs today.
The United States, on the other hand, is the global leader in drug development — and has done so for over three decades. Because our healthcare system values drugs fairly, drug innovators are eager to research and develop drugs stateside. In fact, America’s biopharmaceutical industry dedicated close to $90 billion in R&D efforts in 2016.
All that investment has paid off, too. In the United States, researchers are developing roughly 4,000 new medicines targeting a range of diseases — including potential cures to Alzheimer’s, cancer, and diabetes.
If binding arbitration takes off, Americans may never benefit from these potential treatments. Instead, patients would be left at the mercy of diseases for which there are currently no cures.
Binding arbitration doesn’t deserve President Trump’s support — or the support of Democrats. Letting the government set drug prices would hinder future medical advances.
Health Reform: How do you enact a massive new program, and then keep it from being repealed after it fails? It’s simple. Just pull the numbers out of thin air. That’s basically what happened with ObamaCare.
When centrist Democrats were deciding whether to support ObamaCare in 2010, the “nonpartisan” Congressional Budget Office told them not to worry. The law, it said, would cut the deficit. It would bring 24 million people into the new ObamaCare exchanges. Subsidy costs would be modest. And the number of uninsured would fall by more than half. Those Dems signed on.
ObamaCare Repeal Thwarted
Seven years later, as centrist Republicans contemplated an ObamaCare repeal-and-replace plan, the CBO warned that doing so would boost the number of uninsured by 22 million. That scared enough Republicans away to kill the bill.
Turns out, all those forecasts were way off.
ObamaCare boosted the deficit in its first 10 years. Only 8 million, not 24 million, people enrolled in the ObamaCare exchanges. The average cost of ObamaCare subsidies is 11% higher, and the number uninsured 36% higher, than the CBO projected.
Had the CBO been better at predicting the future of health care under ObamaCare, it’s likely that Democrats would have scaled back their plans, while perhaps seeking Republican input.
Now we learn that the CBO wildly exaggerated the impact of the Republicans’ repeal effort when it said that 22 million would lose coverage as a result. Almost all that loss was from repealing the individual mandate.
Wildly Inflated Numbers
CBO said 7 million people would drop out of the individual insurance market. Another 4 million would lose employer coverage. And 4 million would cancel their Medicaid — even though it’s free. All in the first year.
At the time, we argued that the CBO had hugely inflated those numbers because it vastly overestimated the effectiveness of the individual mandate.
Ironically, Republicans ended up repealing the individual mandate tax penalty, but keeping the rest of ObamaCare. So what happened?
This week, the Center for Medicare and Medicaid Services released its latest annual report on national health spending. The intrepid Philip Klein at the Washington Examiner noticed that, buried in a footnote, was a stunning rebuke of those CBO forecasts.
The report says that the mandate repeal will result in only 1.5 million dropping out of the individual insurance market, and 1 million from employer plans. CMS says Medicaid enrollment will “be unaffected.”
In other words, the CBO was off by a factor of six.
These forecasting errors don’t even rise to the “good enough for government work” level. But they were good enough to get ObamaCare on the books, and then keep it there.
By Sally C Pipes • Investor’s Business Daily
Every year for the past four years, the liberal State Assembly has approved the New York Health Act, which would establish a statewide single-payer plan. But the bill always died in the State Senate, where Republicans have held the majority since 2011. These Republicans united with the centrist members of the Independent Democratic Conference to oppose single-payer.
Most of those Independent Democrats, as well as a handful of Republicans, lost their elections to progressive challengers in 2018. So when the new Democratic majority is sworn in this January, there may be enough single-payer proponents to radically reform New York’s health care system. State Senator Gustavo Rivera, a Bronx Democrat, has pledged to put forward a new single-payer bill in January. Assembly Member Richard Gottfried, a Democrat from Manhattan, confidently predicted the legislature is “on track” to pass the proposal. Continue reading
By Christopher Jacobs • The Federalist
Now they tell us! A Gallup poll, conducted last month to coincide with the midterm elections and released on Tuesday, demonstrated what I had posited for much of the summer: Individuals care more about rising health insurance premiums than coverage of pre-existing condition protections.
Of course, liberal think tanks and the media had no interest in promoting this narrative, posing misleading and one-sided polling questions to conclude that individuals liked Obamacare’s pre-existing condition “protections,” without simultaneously asking whether people liked the cost of those provisions.
Overwhelming Concern about Premiums
The Gallup survey asked the public whether it viewed each of four scenarios as a major concern for them. Among those: “Your health insurance plan will require you to pay higher premiums or a greater portion of medical expenses,” and “you or someone in your immediate family will be denied health insurance coverage for a pre-existing medical condition.” Continue reading
by Doug Badger • National Review
Critics of American health care often ask why ours is the only highly developed country without a taxpayer-funded universal health-care system.
It is a question meant to answer itself: There is no good reason, so the U.S. should fall in line with European financing methods. That is the view of advocates of “Medicare For All,” a proposal backed by most House Democrats.
But the question deserves more than a rhetorical response. Health care is financed differently in the United States because it evolved differently. Private arrangements among hospitals, doctors, employers, and labor unions to finance medical insurance developed and matured over the course of decades, abetted by government policy that treats employer-sponsored health benefits differently than wages for tax purposes. That generally did not happen in Europe.
The American approach offers several advantages that often are overlooked. Continue reading
By Charlie Katebi • The Federalist
Over the last several years, states that expanded Medicaid to able-bodied adults have seen costs skyrocket and patients lose access to critical medical care. Yet despite this disastrous track record, many are recklessly rushing to expand Medicaid in their states.
On July 6, Medicaid expansion advocates delivered boxes full of signatures to Idaho’s secretary of state to place the issue on the state’s ballot in November. Just one day earlier, another ballot drive collected enough signatures to expand Medicaid in Nebraska. In Maine, pro-Medicaid lawmakers are preparing to raise fresh new taxes to grow the program.
The leaders of these campaigns argue that expanding Medicaid will provide health care access to the needy. Unfortunately, expanding coverage to able-bodied adults imposes enormous harm on Medicaid’s traditional enrollees, which include individuals with severe Continue reading
By Nan Hayworth • The Hill
As a physician whose career in medicine was dedicated to preserving and improving my patients’ health, I know firsthand how important it is for everyone to have access to care. This is a fundamental precept, morally and pragmatically sound, that should be honored by all who seek to transform for the better America’s flawed system of health care delivery.
Regrettably, since its passage in 2010, the Affordable Care Act (ACA) has had the net general effect of raising the cost of health insurance while reducing the quality and variety of the services that insurance covers. This is the opposite of what was intended — but the suffering engendered thereby is real and painful.
The best-case remedy would be to repeal the ACA completely and replace it with a much simpler, more targeted set of common-sense interventions to empower consumers and ensure their access to Continue reading
By Sally C. Pipes • Investor’s Business Daily
ObamaCare enrollees should brace themselves for another year of double-digit premium hikes.
Average premiums for plans sold through the state and federal insurance exchanges will jump as much as 32% next year, according to a recent report from actuarial firm Milliman. Consumers in some markets could face 80% rate hikes, according to a separate analysis from Blue Cross Blue Shield.
Democrats have pounced on these projections to blame the GOP for “marketplace sabotage.” Senate Minority Leader Chuck Schumer, D-N.Y., remarked that “Republicans and the Trump administration own any and all increases in health care premiums for American consumers.”
Sorry Chuck, but GOP malfeasance isn’t the problem. ObamaCare’s burdensome Continue reading
By Charles Silver & David A. Hyman • National Review
If you’ve ever been in a collision, you’ve probably dealt with a body shop. In all likelihood, the process went smoothly. You paid your deductible, your insurer paid the rest, and that was the end of the financial side of the repair.
Health care works differently. After eight-year-old Ben Millheim injured himself during a camping trip, his family was stuck with a $32,000 bill from the sky-ambulance company that flew him 88 miles to a hospital in St. Louis. That was the balance that remained after the Millheims’ insurer paid $12,000 for the service. Elizabeth Moreno was stuck with a bill for $17,850 because a physician asked her to provide a urine sample. She didn’t know that the doctor’s testing lab was out of her insurance network. Moreno’s insurer, Blue Cross Blue Shield of Texas, which would have paid an in-network lab $101 for the service, refused to cover the bill at all. Fearing for his daughter’s credit rating, Moreno’s father bargained the bill down to $5,000 and paid.
The Millheims and Morenos are but two of the tens of thousands of families who receive surprise medical bills every year. These are “balance bills,” that seek to hold patients responsible for charges their insurers won’t pay. The problem is so bad and so Continue reading
Health Reform: For three years running, the uninsured rate has remained unchanged, new government data show. That means, despite massive taxpayer costs, ObamaCare is tapped out. It’s time to try something better.
According to the Centers for Disease Control, the overall uninsured rate last year was 9.1%, the same as it was in 2015.
If you take out retirees, who are automatically covered by Medicare, the uninsured rate was 10.7% last year, up a fraction from 10.5% in 2015.
The uninsured rate for the near poor Continue reading
It’s beginning to look like the Republicans have pretty much abandoned their promise to “repeal and replace” Obamacare. Considering they don’t have the votes to do it this does not come as a big surprise. If they want to remain in power though, they have to come up with something.
Fortunately, President Donald Trump is leading and may announce as soon as Thursday a plan to bring the cost of prescription drugs down using market forces rather than mandates. Working through Health and Human Services Secretary Alex Azar, the administration is expected to strongly endorse price competition though the formulary process (developing a list of approved drugs selected to provide the most value) as the key to controlling drug costs.
This is what the voters want. According to several recent polls controlling drug costs is one of the three or four issues most important to people deemed likely to vote in the next elections. Therefore, it’s fortunate good policy and good politics are intersect this way.
Even common-sense approaches to controlling costs — like moving prescription drugs from Medicare Part B to Medicare Part D to increase the government’s ability to negotiate on price — will face fierce opposition on Capitol Hill from drug makers (PhRMA spent $150 million in advertising in favor of Obamacare passage) and from those who believe a Bernie Sanders-style single payer approach is the only reform Congress should even think about enacting.
It’s up to House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell whether they want to follow Mr. Trump’s lead and go further. They’ve been burned, badly, by their failure to “repeal and replace” and with their colleagues are reluctant to take up the issue again.
From a political standpoint, that would be an epic fail leading to serious consequences for the GOP’s congressional majority. Rather than wipe the slate clean, they can utilize now-proven concepts used by pharmacy benefits managers, or PBMs, to produce savings for consumers. Again, this is something the voters want.
No one has to go all in at first. Moving drugs to Medicare Part D as a demonstration project for certain therapeutic classes could be the first step toward future, system-wide reform if, as it is almost certain to do, it works.
On the formulary side, the idea of allowing approved plans to cover just one drug per category or class within Medicare’s protected classes rather than two would also increase the government’s bargaining power on behalf of patients. That could be a tough sell in a town where drug companies spend millions on lobbyists to make sure that profits stay high, but as part of a package of reforms coming out of HHS to lower drug prices and reduce out-of-pocket costs it would just be one of many changes producing cheaper health care without compromising quality or access.
The changes the administration is expected to make can be enacted quickly and efficiently. Costs will come down in the near term in a way meaningful to most consumers. In the long run there’s still much to be done.
Obamacare did not deliver on its promise: People lost the health care they liked, what they could get was more expensive, year by year, and the range of choices available to them contracted. The only way to fix that permanently, as health care experts Grace-Marie Arnett and Marie Fishpaw explained recently, is for Congress to take up a plan addressing three big goals: 1) lower costs and improve patient choices, 2) give states flexibility and resources to achieve these goals, and 3) set federal guardrails so people can choose private coverage if they don’t like the options their state provides.
As Ms. Arnett and Ms. Fishpaw put it, America needs health care reform that recognizes “what works in Massachusetts will not work in Mississippi or Missouri or Montana. What works in big cities will not work in rural areas. In response, we would provide states with greater flexibility and new resources to serve as stewards in returning freedom and choice over health decisions to patients.”
To get to that point, the GOP needs a bigger majority in the U.S. Senate and to hang on in the U.S. House of Representatives. Right now, the Republicans look to be losing seats in the House and probably the majority. That would be the end of real reform. A Democratic majority will define reform as an increase in the role for government and a taxpayer-funded bailout of insurance plans.
What Mr. Trump is supposedly getting ready to propose may not just save health care but may also save the Republican majority, which cannot get through the election without addressing the issue. Finding and supporting ways to cut the cost of prescription drugs may be, in the short run, the only option left.
We keep hearing about how short-term health plans are “junk insurance.” Really? Compared to ObamaCare’s high-deductible HMOs, or Medicaid’s long and often deadly waits?
A new study finds that at least 21,900 people on Medicaid have died waiting for treatment in states that expanded Medicaid eligibility under ObamaCare.
The reason, the Foundation for Government Accountability report says, is that ObamaCare opened Medicaid up to millions of able-bodied non-poor adults. That created a surge in demand for scarce Medicaid resources, forcing the poor to wait longer for services.
An insurance plan that you can’t use? That’s junk insurance. Continue reading
By Fred Lucas • Fox News
Texas AG Ken Paxton and Wisconsin AG Brad Schimel on the lawsuit to end ObamaCare and the future of DACA.
Idaho has become ground zero in a new ObamaCare fight, with officials pursuing major changes that could serve as a national model for other states looking to expand insurance options in defiance of the law – even as Democrats warn of higher costs for vulnerable customers.
As soon as April, Blue Cross of Idaho is planning to make new options available.
That’s after Gov. Butch Otter and Lt. Gov. Brad Little co-signed an executive order asking the Department of Insurance to seek creative ways to make health coverage more affordable. The move opened the door for plans that don’t adhere to ObamaCare coverage requirements – though with the Trump administration testing similar ideas, the state may be unlikely to face much resistance from the White House.
The state’s insurance department now aims to let insurers sell cheaper, less comprehensive plans that officials project Continue reading